AnnuAl
RepoRt
2014
ManageMent Review Financial StateMentS
DISCLAIMER
This Annual Report contains forward-looking statements, including statements about the Group’s sales, revenues, earn-ings, spending, margins, cash flow, inventory, products, ac-tions, plans, strategies, objectives and guidance with respect to the Group’s future operating results. Forward-looking state-ments include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe, antici-pate, expect, estimate, intend, plan, project, will be, will con-tinue, will result, could, may, might”, or any variations of such words or other words with similar meanings. Any such
state-ments are subject to risks and uncertainties that could cause the Group’s actual results to differ materially from the results discussed in such forward-looking statements. Prospective information is based on management’s then current expecta-tions or forecasts. Such information is subject to the risk that such expectations or forecasts, or the assumptions underlying such expectations or forecasts, may change. The Group assumes no obligation to update any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Some important risk factors that could cause
the Group’s actual results to differ materially from those expressed in its forward-looking statements include, but are not limited to: economic and political uncertainty (including interest rates and exchange rates), financial and regulatory developments, demand for the Group’s products, increasing industry consolidation, competition from other breweries, the availability and pricing of raw materials and packaging materials, cost of energy, production- and distribution-related issues, information technology failures, breach or unexpected termination of contracts, price reductions resulting from market-driven price reductions, market acceptance of new
products, changes in consumer preferences, launches of rival products, stipulation of market value in the opening balance sheet of acquired entities, litigation, environmental issues and other unforeseen factors. New risk factors can arise, and it may not be possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on the Group’s business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking state-ment. Accordingly, forward-looking statements should not be relied on as a prediction of actual results.
Editor Carlsberg Group Corporate Affairs Design and production Kontrapunkt Photos Nana Reimers Proofreading Borella projects 4 The Group at a glance
11 Letter from the Chairman 12 Statement from the CEO 14 2015 earnings expectations 16 Regional review
25 Our brand portfolio 26 Our business model 27 Our strategy
34 KPIs
37 Risk management 42 Corporate governance 51 Remuneration report 57 Executive Board & Committee 59 Shareholder information 61 Group financial review 160 Supervisory Board
64 Consolidated financial statements 146 Parent Company
158 Management statement
159 The independent auditors’ report
cOntentS
thirst for great.
Great people. Great brands.
Great moments.
Founded on the motto, Semper
Ardens – Always Burning – we never settle, but
always thirst for the better.
We are stronger together
because we share best practices, ideas, and successes.
We brand as many, but stand as one.
With the
courage to dare, to try, to take risks, we constantly raise
the bar. We don’t stop at brewing great beer. We brew
a greater future – for our consumers and customers,
our communities, and our people.
this passion will
continue to burn and forever keep us thirsty.
3 Carlsberg Group Annual Report 2014 Thirst for Great
our
high-quality beer brands
include our flagship brand
Carlsberg
as well as our
other
international premium
and
local power brands.
they secure strong market
positions and drive value.
glOBal ReacH
cORPORate SOcial ReSPOnSiBilitY OUR winning PORtFOliO
OUR MaRKetS
leaDing POSitiOnS
BalanceD geOgRaPHY
the
Carlsberg Group
is the
fourth largest
global brewer
with leading positions in
Western Europe, Eastern
Europe
and
Asia.
We
service the
rest of the world
through export and licence
agreements.
We aim to be the most
efficient global brewer,
develop
sustainable
packaging
solutions and
promote
responsible
drinking.
Our beer markets range from the old, mature beermarkets in Western Europe to the new and emerging markets of Asia – a market portfolio that supports long-term value growth. Our regional beer volume split is:
75%
25%
25% of volumes and 46% of operating profit are generated in developed markets, giving us a bal-anced geography to drive the top and bottom lines. Scale and strong market positions are important in the beer business. 75% of our beer volumes are sold in markets where we are no. 1 or 2.OUR inteRnatiOnal PReMiUM BRanDS
at a glance
Who we are
41% Western Europe 31% Eastern Europe 28% AsiaDelivering sustainable value
growth to our shareholders and
other stakeholders guides the
way we run our business and
how we set our goals.
at a glance
Driving value
Dividend per share (DKK)
2014 2013 2012
DiviDenD PaYOUt
Improving the return on invested capital (ROIC) is important for creating value for our shareholders. We drive ROIC by executing on our strategic priorities.
The proposed dividend for 2014 of DKK 9.00 equals an increase of 13% versus 2013. The average annual growth rate (CAGR) since 2009 has been 21%.
ROic PROgReSSiOn
>25%
Our dividend policy is a payout ratio of at least 25% of adjusted net profit1.DiviDenD POlicY
-3.6%
We aim to continuously reduce trade working capital to net revenue. In 2014, average TWC/net revenue was -3.6%.tRaDe wORKing caPital
1 Adjusted for special items after tax.
25 20 15 10 5 0
Adjusted payout ratio1
(%) 2014 2013 2012 10 8 6 4 2 0
Driving free cash flow
1. Reducing working capital
2. Optimising investments
• Supply chain • Sales & marketing
3. Efficient financial management Reducing costs 1. Reducing costs 2. Driving effectiveness & efficiency • Centralisation • Standardisation • Optimisation • Simplification Driving net revenue
1. Growing volume • Increasing market share • Capturing market growth 2. Growing value/hl • Value management • Premiumisation & innovations • Portfolio optimisation • Commercial execution 20 16 12 8 4 0 Return on invested capital (ROIC) (%) 2014 2013 2012 ROIC
ROIC excl. goodwill
5 Carlsberg Group Annual Report 2014 The Group at a glance
at a glance
2014 results
OPeRating PROFit net RevenUe
The Group delivered strong
results in Western Europe
and Asia. However, these
results were offset by market
challenges in Eastern Europe.
KeY Financial FigUReS
122.8
3%
We achieved a strong price/mix of 3%. Pro rata beer volumes were 122.8m hl.OUR BeeR vOlUMeS
PRice/MiX 2014 2013 2014 2013 58% 46% 19% 21% 14% 17% 59% 51% 22% 28% 28% 37% Western Europe Eastern Europe Asia Western Europe Eastern Europe Asia
Free operating cash flow (DKKbn) 2014 2013 2012 80 70 60 50 40 30 11 9 7 5 3 1 10 8 6 4 2 0 10 8 6 4 2 0 Net revenue (DKKbn) 2014 2013 2012
Adj. net profit (DKKbn) 2014 2013 2012 Operating profit (DKKbn) 2014 2013 2012
In 2014, the Carlsberg Group generated net revenue of DKK 64.5bn.
In 2014, operating profit was DKK 9.2bn and the Group operating margin 14.3%.
at a glance
2014 highlights
We continued the
roll-out
of BSp1 and went live in
four
more
countries
.
We
gained
market share
across our regions
during
the year.
BSP11
MaRKet SHaRe
OUR BRanDS
43%
Somersby continued its global expansion in 2014 and is now available in 43 markets worldwide. Volumes grew 43%.12%
The Carlsberg brand grew 12% in its premium markets in Asia. Globally, the brand grew 1% in its premium markets.incReaSing Digital FOOtPRint caRlSBeRg ciRcUlaR cOMMUnitY
We launched the
Carlsberg
Circular Community
(CCC),
working with external
partners to develop
packaging solutions
optimised for
recycling
and
reuse
while retaining
or upscaling their
quality
and
value
.
>4m
Each month, the Carlsberg and Tuborg brands are reaching more than 4 million consumers through social platforms.In 2014, we kept a strong push
behind our commercial agenda
and our achievements reflect the
strength of our business model,
our brands and our people.
24%
Tuborg continued its strong growth in 2014. The brand grew 24%, not least due to its impressive performance in Asia.1 Supply chain integration and business standardisation project.
7 Carlsberg Group Annual Report 2014 The Group at a glance
eaSteRn eUROPe
The Carlsberg Group is the sec-ond largest brewer in Western Europe. According to Canadean1,
beer market volumes in the re-gion amounted to approx. 250m hl in 2014. Facts and figures on our Western European markets are shown on page 10. The region mainly comprises mature markets, with market volumes in most markets being flat or slightly declining. In value terms, the region is growing slightly. In 2014, beer category dynamics improved slightly, driven by innovations, increased interest in speciality/craft beers and an overall improved category perception. The region is generally characterised by well-established retail structures and a strong tradition of beer consumption, particularly in the northern and eastern part of the region. The share of on-trade varies between markets, but generally speaking the weak macroenvironment of recent years has led to a shift from on-trade to off-on-trade consumption. The competitive landscape com-prises the global and regional brewers, with intense but gener-ally rational market behaviour. Read more about our strategy in Western Europe and our 2014 results on page 16.
The Carlsberg Group is a strong market leader in the region’s main market, Russia, and no. 2 in the second largest market, Ukraine. According to Canadean1,
beer market volumes in the re-gion amounted to approx. 130m hl in 2014. Facts and figures on our Eastern European markets are shown on page 10. In recent years, Russian beer market volumes have declined, but in value terms the market
has seen positive growth rates. The volume decline has been due to the macroeconomy, unavoidable significant price increases and changed regula-tion. The Ukrainian market has also been in decline due to a macroeconomic slowdown. In 2014, regional market volumes were negatively impacted by the uncertain and challenging macroenvironment as well as increasing inflation.
The off-trade accounts for the majority of the market, but the retail universe is in a stage with a traditional trade that remains strong and a growing modern trade element.
The global brewers are present in Russia and, to a lesser extent, Ukraine. Competitive behaviour is fierce but generally rational. Read more about our strategy in Eastern Europe and our 2014 results on page 19.
37.8
bn
3.0
bn
14.1
bn
5.5
bn
12.5
bn
2.2
bn
DKK – Western Europenet revenue DKK – Eastern Europe operating profit DKK – Eastern Europe net revenue
DKK – Western Europe operating profit
DKK – Asia net revenue
DKK – Asia operating profit
The Carlsberg Group has an attractive footprint with solid market positions in Asia. Accord-ing to Canadean1, beer market
volumes in the region amounted to approx. 640m hl in 2014. Facts and figures on our Asian markets are shown on page 10. The Asian markets are diverse, with our Asian portfolio of busi-nesses consisting of mature markets such as Malaysia, Hong Kong and Singapore as well as attractive growing beer markets such as China, India, Vietnam, Laos and Cambodia. These mar-kets offer considerable prospects for growth, underpinned by expanding populations, urbanisa-tion, rising disposable income levels, growing economies and relatively low per capita beer consumption. However, as emerging markets, development can be subject to volatility. On-trade is a large sales channel in the Asian markets, with the exception of India. Competitive intensity varies, with markets being contested by strong local brewers as well as the global brewers. Read more about our strategy in Asia and our 2014 results on page 22.
at a glance
our regions
weSteRn eUROPe aSia
Statement of cash flows 2010 2011 2012 2013 2014
Cash flow from operating activities 11,020 8,813 9,871 8,142 7,405 Cash flow from investing activities -5,841 -4,883 -3,974 -8,012 -6,735 Free cash flow 5,179 3,930 5,897 130 670
Investments
Acquisition and disposal of property, plant and equipment, net -2,197 -3,618 -2,264 -4,522 -4,828 Acquisition and disposal of entities, net -477 -260 -27 -2,314 -1,681
Financial ratios
Operating margin % 17.1 15.4 14.6 15.1 14.3 Return on invested capital (ROIC)2 % 8.8 8.4 8.0 8.1 8.0
Return on invested capital excl. goodwill
(ROIC excl. goodwill)2 % 15.4 14.7 14.3 14.5 15.3
Equity ratio % 44.5 44.6 45.6 45.2 38.3 Debt/equity ratio (financial gearing) x 0.47 0.45 0.44 0.48 0.65 Debt/operating profit before depreciation and amortisation x 2.30 2.39 2.35 2.55 2.74 Interest cover x 4.76 4.86 5.53 6.46 7.75
Stock market ratios
Earnings per share (EPS) DKK 35.1 33.8 36.8 35.9 28.9 Earnings per share, adjusted (EPS-A)1 DKK 35.6 34.1 36.1 37.8 36.0
Cash flow from operating activities per share (CFPS) DKK 72.1 57.7 64.6 53.4 48.4 Free cash flow per share (FCFPS) DKK 33.9 25.7 38.6 0.9 4.4 Dividend per share (proposed) DKK 5.0 5.5 6.0 8.0 9.0 Payout ratio % 14 16 16 22 31 Payout ratio, adjusted1 % 14 16 17 21 25
Share price (B shares) DKK 558.5 405.0 554.0 600.0 478.8 Number of shares (year-end, excl. treasury shares) 1,000 152,539 152,523 152,555 152,533 152,538 Number of shares (average, excl. treasury shares) 1,000 152,548 152,538 152,543 152,548 152,535
1 Adjusted for special items after tax. 2 12-month rolling average.
The effect of the change in accounting policies from the implementation of IFRS 10-12 as of 1 January 2014 is recognised in the opening balance at 1 January 2013 in accordance with the specific transition requirements of the standards. Comparative figures for 2013 have been restated accordingly.
at a glance
Five-year summary
Sales volumes, gross (million hl) 2010 2011 2012 2013 2014
Beer 136.5 139.8 140.9 138.7 134.5 Other beverages 22.5 22.2 22.0 21.5 22.7
Sales volumes, pro rata (million hl)
Beer 114.2 118.7 120.4 119.7 122.8 Other beverages 19.3 19.2 19.1 19.7 21.0 DKK million
Income statement
Net revenue 60,054 63,561 66,468 64,350 64,506 Operating profit before special items 10,249 9,816 9,793 9,723 9,230 Special items, net -249 -268 85 -435 -1,353 Financial items, net -2,155 -2,018 -1,772 -1,506 -1,191 Profit before tax 7,845 7,530 8,106 7,782 6,686 Corporation tax -1,885 -1,838 -1,861 -1,833 -1,748 Consolidated profit 5,960 5,692 6,245 5,949 4,938 Attributable to:
Non-controlling interests 609 543 638 478 524 Shareholders in Carlsberg A/S 5,351 5,149 5,607 5,471 4,414 Shareholders in Carlsberg A/S, adjusted1 5,425 5,203 5,504 5,772 5,496
Statement of financial position
Total assets 144,250 147,714 153,961 152,308 136,983 Invested capital, year-end 117,119 118,196 121,467 119,112 103,587 Invested capital excluding goodwill, year-end 66,281 62,199 67,553 61,946 51,041 Interest-bearing debt, net 32,743 32,460 32,480 34,610 36,567 Equity, shareholders in Carlsberg A/S 64,248 65,866 70,261 67,811 52,437
9 Carlsberg Group Annual Report 2014 The Group at a glance
OUR MaRKetS MaRKet Data1 cOnSUMPtiOn cHaRacteRiSticS1 OUR POSitiOn OUR OPeRatiOnS
Western Europe Population (millions)
Est. GDP/capita
PPP (USD) Est. real GDP growth (%)
Inflation, avg. consumer
prices (%) consumption (litres)Per capita beer
On-trade share of market,
approx. (%) position (no.)Market share (%)Market Breweries
Denmark 5.6 44,325 1.5 0.6 80 27 1 54 1 Sweden 9.7 44,695 2.1 0.1 60 21 1 33 1 Norway 5.2 65,896 1.8 2.0 47 20 1 54 2 Finland 5.5 40,455 -0.2 1.2 84 15 1 51 1 France 64.0 40,445 0.4 0.7 29 22 1 29 1 Switzerland 8.1 55,237 1.3 0.1 57 42 1 42 1 UK 64.5 37,744 2.6 1.6 70 51 4 14 1 Poland 38.5 24,429 3.2 0.1 96 11 3 19 3 Germany 80.9 44,741 1.5 0.9 107 22 12 162 2 Italy 60.0 34,455 -0.4 0.1 27 38 4 7 1 Portugal 10.5 26,307 1.0 0.0 47 56 1 48 1 The Baltics3 6.3 25,7675 1.2-3.0 0.3-0.8 72-96 4-8 1-2 28-41 3
South East Europe4 29.7 19,6955 -0.8-1.4 -1.2-2.3 37-71 17-56 2-3 15-26 5
Eastern Europe Russia 143.7 24,764 0.6 7.4 55 10 1 38 8 Ukraine 45.3 8,240 -6.5 11.4 52 11 2 28 3 Belarus 9.4 18,178 0.9 18.6 51 4 1 32 1 Kazakhstan 17.4 24,144 4.6 6.9 27 11 2 21 1 Azerbaijan 9.4 17,943 4.5 2.8 6 21 1 72 1 Asia China 1,367.5 12,893 7.4 2.3 32 46 5 ~556 44 Vietnam 90.6 5,621 5.5 5.2 33 49 2 33 67 Laos 6.9 4,999 7.4 5.5 38 44 1 98 2 Cambodia 15.3 3,282 7.2 4.5 33 39 1 56 1 Nepal 28.1 2,381 5.5 9.0 2 81 1 72 1 India 1,259.7 5,777 5.8 7.8 2 16 3 11 6 Malaysia 30.5 24,521 5.9 2.9 6 77 2 44 1 Singapore 5.5 81,346 3.0 1.4 22 75 2 20 -Hong Kong 7.3 55,167 3.0 3.9 24 29 1 26
-at a glance
our main markets
Flemming Besenbacher
letteR
FROM tHe
cHaiRMan
strong confidence in his ability to define the next phase strategy of the Carlsberg Group’s long-term profitable and sustainable growth, working with the Executive Committee. I would like to thank Jørgen for his signifi-cant contribution to the Carlsberg Group during his tenure. The Group today is a transformed company compared to when Jørgen took over. Although performance has been challenged by macro developments in Russia, Jørgen has succeeded in creating a strong international leadership team and a highly commercially capable and efficient organisation, which has delivered strong results across many markets.
Board changes
In 2014, Per Øhrgaard, a long-time member of the Board, stepped down having reached the age limit stipulated in the Articles of As-sociation. Likewise, Jess Søderberg, currently Deputy Chairman, will step down at the AGM in March. I would like to thank both Per and Jess for their fantastic contribution to the Group during their tenure. Carl Bache was elected by the AGM in March 2014 to replace Per. At the coming AGM, the Board will propose Lars Rebien Sørensen, CEO of Novo Nordisk A/S, as a new member of the Board.
Thanks
On behalf of the Supervisory Board, I would like to thank all our employees for their hard work and dedication during 2014, and the Executive Committee for its leadership.
Flemming Besenbacher Welcome to our 2014 Annual Report for
shareholders and other stakeholders, which outlines the operational and financial results of the Carlsberg Group and the strategies employed to deliver value. The section on corporate governance details our govern-ance structure and the activities carried out by the Supervisory Board during the year. See page 42.
Performance
Our Company has strong fundamentals with market-leading positions across Western Europe, Eastern Europe and Asia. In 2014, our Company delivered organic profit growth driven by strong performances in Western Europe and Asia. This growth was in spite of an extremely difficult macroenvironment in Eastern Europe, particularly Russia, where both the very challenging consumption envi-ronment and the significant currency decline severely impacted our business, and on a reported basis 2014 profit was down. Let me assure you that the management team has taken decisive action and that all markets have done an impressive job to mitigate the impact of the challenges.
Overall, the Company’s adjusted net profit was DKK 5.5bn and the Board is recom-mending a dividend of DKK 9.00.
Board activities
The Board is focused on ensuring that our Company delivers shareholder value while also responsibly meeting our obligations to stakeholders. The Board regularly reviews our Company’s short-term and long-term strategy, and assesses a wide range of our business activities, taking a more in-depth look at certain particularly critical business areas. In 2014, this included Eastern Europe
and the performance of the business in a very difficult macroeconomic situation, the opportunities and risks associated with the various business enhancement and efficien-cy initiatives, emerging categories such as craft beer, financial structure and M&A, as well as business ethics and regulatory compliance. As ongoing innovation capabil-ity is important for the Group’s role in the industry longer term, we also closely follow the work carried out by the Carlsberg Lab-oratory and Research Center.
The Board wants our Company to be a lead-er in CSR. We engage in the development of responsible and sustainable solutions as we believe this will benefit not only the environment, but also the Company’s long-term profitability. Packaging is an important contributor to CO2 emissions, and for some years the Group has worked on increasing the sustainability of packaging using a circu-lar economy approach.
Change of CEO
In agreement with the Board, our President and CEO of the past seven years, Jørgen Buhl Rasmussen, will retire from the Com-pany as of June 15. Replacing him will be Cees ’t Hart, a Dutch national with a strong international business career. He joins the Carlsberg Group from a position as President and CEO of one of the largest global dairy companies, Royal FrieslandCampina, with operations in 30 countries across Europe, the Middle East, Asia and Africa and with sales in over 100 markets. Prior to joining Royal Fries landCampina in 2008 Cees spent 25 years with Unilever, with his last position being as a member of the Europe Executive Board. The Supervisory Board and I look very much forward to welcoming Cees and have
The Carlsberg Group’s
Supervisory Board is focused
on ensuring that the Company
is run in a responsible manner
and that we create value for
our shareholders.
Flemming Besenbacher
Chairman of the Supervisory Board
11 Carlsberg Group Annual Report 2014 Letter from the Chairman
Jørgen Buhl Rasmussen
In 2014, we delivered solid performance, with our Western Europe and Asia regions achieving organic growth in operating profit of 7% and 8% respectively. These achievements were the result of continued brand support, clear priorities and focus on execution across our business. They enabled us to more than offset the profit decline in Eastern Europe caused by the very chal-lenging macroeconomic and geopolitical situation in Russia and Ukraine as well as the adverse currency impact.
Delivering on market share
I am pleased to report another year of strengthened market share in the majority of our markets in Western Europe and Asia, and an improved market share during the year in Russia.
Our market share performance is proof of our successful commercial strategy, an important part of which is to ensure that we have a strong portfolio of both international premium brands and local power brands to offer to our customers and consumers. During 2014, we grew all our international premium brands – Carlsberg, Tuborg, Kro-nenbourg 1664, Grimbergen and Somersby
StateMent
FROM tHe ceO
– and achieved strong results for our local power brands.
Another important part of our strategy is to apply our best-in-class sales and market-ing tools across all markets. In 2014, this included the continued application and, in some mature markets, further development and improvement of our value management toolbox, which has been an important driver of the Group’s overall market share gains and positive price/mix in recent years. Innovation is another key priority. In 2014, our efforts included launches of the non- alcoholic beer Carlsberg Nordic, Brewmasters Collection and K by Kronenbourg, further roll-out of Radler and Seth & Riley’s Garage, and further expansion of our pro prietary DraughtMaster™ technology.
A strong portfolio of international brands
In 2014, the Carlsberg brand grew 1% in its premium markets, with particularly strong performance in India, China and France, while the brand declined in Eastern Europe due to the overall market decline. Several important activities took place during the year, such as activation in 66 countries of the English Premier League sponsorship, the UEFA EURO 2016™ activation, which kicked off in September, a step-up in digital marketing activities, and, last but not least, commencement of the roll-out of the latest communication platform with the taglines “Probably the best beer in the world” and “If Carlsberg did”.
The Tuborg brand grew strongly, by 24%, as a result of impressive growth in Asia,
par-ticularly in China and India. The brand has become the fastest growing international premium brand in China and the no. 1 in-ternational premium brand in India. During the year, we continued to deploy the brand rejuvenation programme and strong global consumer programmes.
Our French brewery Brasseries Kronen-bourg celebrated its 350th anniversary in 2014, and Kronenbourg 1664 delivered 9% volume growth for the year. The growth was partly the result of easy comparisons with the previous year, but it was also driven by market share gains in France, growth in export markets and further roll-outs in new markets. 1664 Blanc achieved good results in several Asian markets.
Somersby continued its very successful pro-gression, growing 43%. It was once again the fastest growing cider brand among the top 10 biggest ciders globally and is now available in 43 markets across the world. The achievement was driven by category growth in existing markets, the global activ-ation platform “Friendsie”, line extensions in established markets and launches in new markets.
Our Belgian abbey ale, Grimbergen, grew 27%, and since 2011 it has been the fast-est growing international abbey beer. We continued to expand the brand’s footprint, as a result of which it is now available in 36 markets globally.
Speeding up on digital reach
In 2014, we determinedly expanded our digital activities, aiming to continuously strengthen content, maximise connections,
The organic earnings growth
in 2014 was the result of our
strong brands, clear priorities
and strong execution, enabling
us to offset the challenging
conditions in Eastern Europe.
Jørgen Buhl RasmussenMoving ahead on CSR
Our CSR work is addressed in detail in our CSR report, but I would like to highlight two events from 2014.
Firstly, we joined forces with a coalition of the world’s biggest companies and non-profit organisations to launch the global digital media platform “Collectively”, which aims to drive conversation and action on sustainability.
Secondly, we officially launched the Carls-berg Circular Community (CCC) at the World Economic Forum in Davos, Switzerland. CCC is about working with external partners across the value chain to develop packaging solutions optimised for recycling and reuse while retaining their quality and value.
Structural changes
During 2014, we took further steps to strengthen the Group’s growth profile. In Vietnam, we increased our ownership of South-East Asia Brewery and Hanoi-Vung Tau Beer to 100%, while in China we com-pleted the acquisition of Chongqing Beer Group Assets Management. In Europe, we acquired 51% of Zatecky Pivovar in the Czech Republic and announced the merger of our Greek business Mythos with Olym-pic Brewery, creating a strong no. 2 in the Greek market. The merger is pending anti-trust approval.
Changes to the Executive Committee
In 2014, there were some changes to the Executive Committee as Khalil Younes chose to pursue new challenges outside the Group, while Isaac Sheps and Anne-Marie Skov announced their retirement. I would like to During 2014, the supply chain integration
and business standardisation project (BSP1) in Western Europe was rolled out in the UK, Finland, Poland and Switzerland. The system is now live in six countries, with the next wave of the remaining large markets going live in the spring of 2015.
In addition to BSP1, all three regions are fo-cused on improving efficiencies in all areas. In Eastern Europe, this meant, among other things, considering brewery closures as an unavoidable response to past years’ decline in market volumes. Consequently, in Janu-ary 2015, we announced the closure of two breweries in Russia.
thank them very much for their highly valued contributions and dedication to the Group.
Their respective replacements were Graham Fewkes, previously Commercial Vice President, Asia; Jacek Pastuszka, previously CEO of Ringnes in Norway; and Andraea Dawson-Shepherd, who joined from a global position as Senior Vice President for Corporate Communica-tion & Affairs at RB plc. They are great contributors to the Executive Committee and I warmly welcome them.
Change of guard
On June 15, I will retire from the position as President and CEO of the Carlsberg Group. It has been seven exciting years in this fantastic company with its great heritage, strong brands and very pas-sionate and highly qualified people. I am proud of handing over a company with strong fundamentals to Cees ’t Hart, who I am sure will take the Group to the next level.
Thank you
I would like to thank all our employees around the world for another year of hard work and commitment to achieving our goals in spite of tough challenges. I would also like to thank our shareholders for their support, and our customers, partners and suppliers for their cooperation.
Jørgen Buhl Rasmussen and develop and implement tools and
systems to reach consumers and customers. We achieved significant reach with our social platforms. The Carlsberg and Tuborg brands now reach more than 4 million consumers every month. During the year, our digital activities included #happybeertime for on-trade customers, the Carlsberg Premier League Live Match Centre, UEFA EURO 2016™ engagement through Facebook and Twitter, and, in Denmark, Zulu BFF, a reality show featuring multi-channel viewing.
Continued emphasis on efficiencies
Delivering on our strategy also requires the back-end of the business to function smoothly and efficiently.
13 Carlsberg Group Annual Report 2014 Statement from the CEO
While we expect our Western Europe and Asia regions to continue their positive de-velopment, the expected GDP decline and currency devaluation in Russia and Ukraine will put significant pressure on the Group’s overall performance. To mitigate this, in our planning for 2015 we have taken tough decisions aiming at further improving our cost-effectiveness, while also continuing to invest in our brands and our longer-term capabilities for competitiveness. Clearly the Eastern European business is working on different scenarios and plans that can be executed if the environment changes. 2015 will be a year when we intensify focus on return on invested capital (ROIC). This key metric is also reflected in the organisa-tion’s incentive programmes for the year. In addition, we are also aiming for improved credit metrics. This also means that despite the M&A strategy staying intact, the M&A agenda will have a low priority for a period of time.
Although we are taking all necessary sensible actions to protect short-term profitability and improve cash flow and returns, we will continue to build on the strengths of our company to ensure that we capture both the
short- and longer-term opportunities that are present in our markets. We will continue to invest in our brands and growth opportunities.
Some of the key actions and priorities for 2015 are:
Group
• Continue investing in our brands and organic growth opportunities.
• Keep developing and expanding sales and go-to-market tools and capabilities. • Implementation of a Group-wide push
to further improve the organisational efficiencies by simplifying, streamlining and removing duplication in processes and functions.
• Implementation of operating cost man-agement which is a new framework for budgeting (including ZBB), tracking and monitoring costs, commencing in 2015. • Improvement of return on invested
capital through further trade working capital improvements and lower capital expenditures.
• Continue building on the strength of the global supply chain to ensure further efficiency gains – on both costs and capital employed.
Western Europe
• Maintaining the strong momentum of the Western European business and continu-ing the positive value market share trend by applying a focused commercial agenda. • Finalising the BSP1 roll-out in the
remain-ing large markets in Western Europe during the spring.
• In general focusing on achieving benefits faster than previously planned.
Eastern Europe
• Balancing price increases and affordability. • Utilising the strength of our Russian brand
portfolio, route-to-market, innovation capabilities and execution skills to further strengthen our market leadership. • Executing the closure of two Russian
breweries (as announced on 29 January 2015).
Asia
• Further developing and investing in our Asian business to capture the growth opportunities in the region.
• Finalising the integration of Chongqing Brewery Group and beginnng the integra-tion of Chongqing Eastern Assets with the aim of fast earnings recovery.
We expect the market development in our three regions to be mixed for 2015: • The Western European beer markets are
expected to be flat. Driven by innova-tions, increased interest in speciality and craft beers and overall improved category perception, beer category dynamics have improved slightly compared with the past years of decline.
• The Eastern European markets are expected to decline due to the expected decline in GDP and accelerating infla-tion in Russia and Ukraine, which will put consumers and the beer category under pressure. We expect that the Russian beer market will continue to grow in value terms as price increases will more than offset the volume decline.
• The Asian markets are expected to con-tinue to grow. Our non-Chinese markets are expected to grow in line with recent years while we assume that the Chinese beer market will grow in contrast to the weak 2014, although volume growth is expected to be below historic averages.
2015 eaRningS
EUR/RUB
avg. YTD 2015 EUR/RUB change Operating profit impact
75 +/- 10% +/- DKK 200m
Based on these market assumptions, our ability to outperform the market and the actions we are taking to improve profitability, for 2015 the Group expects:
• Operating profit to grow organically by mid- to high-single-digit percentages. Due to the recent volatility of currency rates, especially the Russian rouble, we do not provide any guidance on reported operating profit development. However, the sensitivity of reported operating profit to movements in RUB vs EUR (combined transaction and translation effect) is shown in the table below. The EUR/RUB YTD 2015 has averaged around 75. Assuming that this rate will prevail for the full year, the negative translation impact for 2015 will be around DKK 0.9bn. For 2014, the rouble proportion of operating profit (before not allocated costs) was around 25%. No other non-EUR currencies account for more than 7% of operating profit. In reported terms, Eastern Europe is expected to account for less than 20% of operating profit in 2015 (before not allocated costs).
Other significant assumptions and sensiti-vities are:
Cost of goods sold per hl is expected to be lower than in 2014. In organic terms, cost of goods sold per hl is expected to be higher than last year in Eastern Europe, primarily due to currency impact on materials priced in USD or EUR.
Sales and marketing investments to net revenue are expected to be slightly higher than last year.
As a consequence of the aforementioned focus in 2015 on realising the full range of benefits earlier, we will postpone the BSP1 implementation in small markets to 2016. Average all-in cost of debt is assumed to be around 4%.
The tax rate is expected to increase to approximately 28%, mainly because the Russian business, where the corporate tax rate is below Group average, will decline in importance.
As part of the intensified focus on ROIC, capital expenditures will be approximately DKK 4bn in 2015 (around index 90 to expected depreciation), a reduction of approximately 30% compared with 2014. Net debt to EBITDA is expected to be less than 2.5 end of 2015.
15 Carlsberg Group Annual Report 2014 2015 earnings expectations
OUR RegiOnS
Western europe
Beer category dynamics
improved in Western Europe
in 2014, and we delivered
strong results.
Living our strategy
Our Western European region primarily com-prises mature beer markets. While market volumes tend to be flat or slightly declining, the overall value of the market has seen a positive development in recent years. Our main objective in Western Europe is to improve profitability, cash flow and returns. Our commercial focus is on supporting the top line by driving a positive trend in net revenue per hl and increasing our market share, measured in terms of both volume and value. We aim to achieve this by pre-miumising our portfolio through expand-ing the reach of our international premium brands, supporting and developing our strong local power brands, and being at the forefront of launching innovations. We are driving a customer-focused organi-sation and establishing close cooperation with our winning customers. To this end, we apply best-in-class tools such as value management, ROMI (return on marketing investments) and our FIT model (Focus- Implement-Track), which supports the delivery of superior in-store execution. To increase the return on our activities, we identify “pockets of growth” in our local markets, such as types of beer, packaging types, sales channels and geographic areas, in order to target our efforts and capture their growth potential.
Simultaneously, we maintain a sharp focus on reducing costs and capital employed. We aim to achieve this by optimising asset utilisation, increasing efficiencies across the business and simplifying our business mod-el, while still providing superior customer service and top-quality products.
An important enabler on this journey is the roll-out of the supply chain integration and business standardisation project (BSP1). Additional measures include alignment of organisational structures and harmonised ways of working across markets.
Delivering on our ambitions for the region requires us to develop our people and create a performance culture as well as in-creasing mobility across the region and the Group. Furthermore, we want to improve the image of the beer category to pro-tect our licence to operate. We do this by continuously enhancing our environmental efficiency, engaging in responsible drink-ing activities and introducdrink-ing sustainable packaging solutions to our customers.
Driving results in 2014
The Western European markets showed slightly better volume dynamics in 2014 than in recent years and we estimate that the overall beer market was flat. The weath-er impact for the year was vweath-ery limited. Our positive market share performance of the previous three years continued in 2014 and our Western European business has now gained market share for four years in a row. We delivered good market share performance in the majority of our markets, including Poland, Norway, France, Denmark, Portugal, Italy, Greece, Germany and Croatia.
Operating margin (%)
2014 2013 2012
Beer volume, pro rata (Million hl) 55 45 35 25 15 5 6 5 4 3 2 1 16 15 14 13 12 11 40 32 24 16 8 0 Net revenue (DKKbn) Operating profit (DKKbn) 2014 2013 2012 2012 2013 2014 2014 2013 2012
Change Change Pro rata, million hl 2013 Organic Acq., net FX 2014 Reported
Beer 49.0 2% 0% 50.0 2% Other beverages 14.9 6% 0% 15.8 6% Total volume 63.9 3% 0% 65.8 3% DKK million Net revenue 37,393 1% 0% 0% 37,762 1% Operating profit 5,183 7% 0% -1% 5,470 6% Operating margin (%) 13.9 14.5 60bp weSteRn eUROPe
This strong performance was driven by the further deployment of our commercial tools, such as value management and sales force efficiency tools, roll-out of our international premium brands and product launches and innovations. A few examples are the Carlsberg Nordic Collection in a number of markets, Somersby in Germany, K by Kro-nenbourg in France, Radler in new markets and the non-alcoholic beer Carlsberg Nordic in Denmark. In addition, we have strength-ened our position in the speciality beer category in several markets with products such as Grimbergen, Frydenlund Pale Ale in Norway, Nya Carnegie in Sweden, Okocim Browar in Poland and Jacobsen, which all continued to grow.
Beer volumes grew organically by 2% with particularly strong growth in France, Denmark, Poland, Norway and Germany. Beer volume declined in the Balkans, Italy, the Baltic States, the UK and Finland. Other beverages grew organically by 6%, mainly due to strong performance in the Nordics, driven by a strong activation programme, and in Switzerland.
Net revenue grew organically by 1%. While we achieved a positive effect from our value management efforts, price/mix declined by 1%, impacted negatively by the strong growth in other beverages, a negative chan-nel mix and last year’s strong price/mix development.
Operating profit grew organically by 7%. The improvement was driven by volume growth, cost savings within the supply chain and our ongoing focus on improving efficiencies in all areas. Operating margin improved 60bp to 14.5%.
Poland and the Nordics
The Polish market grew by an estimated 1%. We continued to gain volume and value market share, and increased volumes by 3%. The strong performance was driven by excellent commercial execution, increased distribution and growth of the local brands Kasztelan, Harnas and Okocim, as well as the continued good progress of innovations such as Somersby and Radler.
We continued to strengthen our market position in Western Europe, growing our overall market share for the fourth year in a row.
17 Carlsberg Group Annual Report 2014 Our regions
We continued our strong performance in Poland in 2014, growing volume and value market share as well as profitability. Our Nordic business performed strongly,
driven by market growth in Denmark (+1%) and Norway (+3%), soft drinks category growth and strong commercial execution, including product launches and value management. Our beer volumes grew in Denmark (+3%), Norway (+4%) and Sweden (+1%), while volumes declined in Finland (-5%) due to a declining Fin-nish beer market. We gained market share in Denmark, Sweden and Norway and in Finland in the second half of the year. In Denmark, we benefitted from strong growth in the speciality beer category, our relisting at a major customer and good performance by Tuborg and Carlsberg. In Norway, our local brands Frydenlund and Munkholm per-formed well, as did Tuborg. Our soft drinks business did particularly well in Denmark, Sweden and Norway.
France and the UK
In France, the market grew by an esti-mated 3%. Our French beer volumes grew by 11%, impacted positively by last year’s destocking in Q1 and market share gains. Our premium brands Kronenbourg 1664, Grimbergen and Skøll by Tuborg, as well as the flavoured K by Kronenbourg in the mainstream category, all delivered strong performance. This was driven by strong commercial execution and a high level of innovations in liquids and packaging.
The UK market grew by approximately 1% driven by a growing off-trade channel, although the on-trade continued to decline. We lost market share in both channels partly as we chose not to participate fully in various promotional activities during the year. Our price/mix improved slightly. The Somersby brand continued to grow.
OUR RegiOnS
eastern europe
The Eastern European beer
markets were challenged in
2014, but we increased our
market share during the year.
Living our strategy
Our two main markets in Eastern Europe are Russia, which accounts for approx. 75% of regional beer volumes, and Ukraine, which accounts for a little less than 20%.
In recent years, the Russian market has undergone significant changes, but the value of the beer market has still gener-ally seen mid- to high-single-digit annual growth rates, while market volumes have come down by mid-single-digit percent-ages (CAGR1).
The Carlsberg Group’s share of the beer profit pool in Russia significantly exceeds its volume market share of 37.8%. We want to maintain our position as the undisputed leader of the beer category in value and volume terms, and we believe that the Eastern European region, including Russia, offers long-term growth opportunities. Consequently, our main focus in the region is on strengthening our Russian business. Notwithstanding the greater uncertainty and volatility of recent years, which have required detailed contingency and scenario planning, we will continue to invest in the long-term profitability of the business. To this end, we are utilising Group tools to optimise product offerings and drive a
positive mix by means of innovations and focusing on our local premium and interna-tional premium brands. We are continuous-ly improving our commercial execution by applying best-in-class tools and concepts at the point of sale, optimising our route-to-market capabilities and improving in-store communication and cooler efficiency. A number of actions have been taken to enhance the cost-efficiency and asset utilisation of the Eastern European busi-ness, and to align structure, organisation and ways of working in areas such as production, logistics, marketing, sales and administration.
The challenges of recent years have em-phasised the crucial role of our people. We have therefore taken major steps to drive a performance culture, manage talent, and build a resilient and engaged organisation with strong skills in change and project management.
Protecting our licence to operate and sup-porting the image of the beer category are important priorities in the region.
We are actively working to reduce the im-pact of our business on the environment, we are promoting the perception of beer and responsible drinking, and we have strong and proactive interaction with local, regional and federal governments both as a company and through the brewers’ associations.
Driving results in 2014
Our Eastern European beer markets were negatively impacted by the uncertain and challenging macroenvironment, as well as
Operating margin (%)
Beer volume, pro rata
(Million hl) Net revenue(DKKbn)
Operating profit (DKKbn) 2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012 55 45 35 25 15 5 5 4 3 2 1 0 25 20 15 10 5 0 25 20 15 10 5 0
1 Compounded annual growth rate.
19 Carlsberg Group Annual Report 2014 Our regions
Change Change Pro rata, million hl 2013 Organic Acq., net FX 2014 Reported
Beer 42.4 -11% 0% 37.8 -11% Other beverages 1.7 1% 0% 1.7 1% Total volume 44.1 -10% 0% 39.5 -10% DKK million Net revenue 17,711 -3% 0% -17% 14,100 -20% Operating profit 4,127 -12% 0% -16% 2,962 -28% Operating margin (%) 23.3 21.0 -230bp eaSteRn eUROPe
increasing inflation during the year which reduced consumer purchasing power and impacted the beer category negatively. Consequently, our regional beer volumes declined organically by 11%.
Despite the market challenges, we contin-ued to invest in our brands and maintained commercial activities at a high level. These included the activation of sponsorships, such as the Continental Hockey League and local football teams, with the Baltika brand being activated in stadia and in TV commercials. Other activities included the Tuborg
Green-Fest music festival, which was rolled out to more cities. In addition, we continued to upgrade our regional brands and launched innovations such as Koff, Brewmasters Col-lection, Jacobsen and Seth & Riley’s Garage. Organic net revenue declined by 3%. Price/ mix was strong at 9%, driven by price in-creases, a positive mix and slightly smaller pack sizes in Russia. Reported net revenue declined by 20% due to the substantial negative currency impact of -17% as the Ukrainian hryvnia (UAH) devalued by 31% and the Russian rouble (RUB) by 16% for the year.
Operating profit declined organically by 12%. The decline was mainly caused by lower volumes, higher logistics costs and one-offs, such as the write-off of obsolete stocks. The decline was further compounded by the very negative currency impact, resulting in a decline of 28% in reported operating profit. While gross profit per hl increased by 9% organically and operat-ing profit per hl declined modestly by 1% organically, reported operating profit margin declined by 230bp to 21.0%.
Russia
The Russian beer market declined by an estimated 7% as a result of macroeconomic
Find more details about our
markets and our many brands.
www.carlsberggroup.com
While maintaining a high level of commercial activities in Russia to support our strong position in the market, we also took several actions to reduce costs.
weakness, especially during H2, accelerated inflation throughout the year and the subse-quent impact on consumers’ ability to spend on the beer category. Driven by strong pricing in the market, the value of the Rus-sian beer market grew by a mid-single-digit percentage. We increased prices in Russia in March, May, October and November.
Our Russian shipments fell 14% due to the overall market decline, less stocking by wholesalers in Q4 than in 2013 and market share development. As a result of the rapid channel shift from traditional to modern trade, end-of-year stock levels at whole-salers were higher than previously expected although lower than at year-end 2013. Our Russian volume market share im-proved sequentially through the year and grew 50bp year-on-year in Q4 to 38.6%. For the full year, our volume market share declined by 80bp to 37.8% (source: Nielsen Retail Audit, Urban & Rural Russia). The full-year market share loss was mainly due to the launch of slightly smaller pack sizes to minimise price increases, our price leadership during the first nine months and the temporary disruption in late Q1 and early Q2 following the change in the legal structure of Baltika Breweries. Our mix was positive, driven by particularly good results for Baltika 7, Baltika 9, Baltika Praha and Brewmasters Collection, while Baltika 3, Cooler and Bolshaya Kruzhka declined. To ensure a strong and profitable Russian business, we have taken several actions to reduce costs. However, while we have been
meticulous in our efforts to reduce costs in our Russian operations, we are nevertheless conscious of the need to maintain a strong business that will be in a position to exploit the longer-term opportunities of the Rus-sian market. Actions taken have included closure of the Krasnoyarsk and Chelyabinsk breweries, further streamlining of the sales organisation etc.
Mainly as a result of the currency headwind, the Russian market accounted for around 25% of Group operating profit in 2014 (before not allocated costs).
Ukraine
The Ukrainian beer market declined by an estimated 8% due to the highly challenging and uncertain macroeconomic climate as well as significant price increases to cover inflation and a 43% excise tax increase in May. We have been able to operate our business in Ukraine, albeit with disruptions. We estimate that our market share was slightly up.
In spite of consumers being under pressure from the challenging macro- environment in Eastern Europe, price/mix was strong at 9%.
21 Carlsberg Group Annual Report 2014 Our regions
OUR RegiOnS
Asia
Most markets in Asia grew in
2014, and we increased our
market share in most markets.
Living our strategy
The Carlsberg Group has an attractive footprint in Asia. Over the years, we have continuously expanded our presence in the region, both organically and through acquisitions. Our strategy in Asia is to build strong, scalable positions and to invest with a long-term perspective in the key growth markets.
Commercially, our focus in the region is on expanding the reach of our interna-tional premium brands, and strengthening and premiumising our local power brands. The latter includes upgrading packaging, visual identity and communication as well as simplifying and rationalising the brand portfolios. In addition, we are sharpen-ing our commercial execution capabilities by applying toolkits based on Group best practices in order to accelerate growth. Ini-tiatives include improving the performance and efficiency of sales teams, applying IT and smartphone applications in sales and customer management, updating channel segmentation and increasing the frequency of customer visits.
With the increasing consolidation of our Asian footprint, we are also driving an ef-ficiency agenda across our business with an emphasis on optimising structures and ways of working by using well-proven Group concepts and operating models.
Our people are an important strategic prior-ity. Our focus is on developing leadership capabilities and enhancing the professional skills of our employees in order to increase workforce competence levels.
Across the Asian region, we are actively working to protect our reputation as a responsible and efficient brewer, and to enhance the image of the beer category. Initiatives include health & safety cam-paigns, improving the environmental foot-print of our breweries, promoting sustain-able packaging and launching responsible drinking campaigns.
Driving results in 2014
Our Asian business, which delivered another year of strong performance, has in recent years become a significant part of the Carlsberg Group, now accounting for 20% of operating profit (before not allocated costs). Asia has been, and will remain, an important growth driver for the Group, and consequently we will continue our invest-ment strategy, which includes investinvest-ments in brands, breweries and infrastructure. Beer volumes were flat organically, though with volume dynamics stronger in H2 than in H1. Including acquisitions, beer volumes grew by 24%. Our businesses in Cambodia, Laos and India did particularly well. The acquisition impact derived mainly from the increased ownership in Chongqing Brewery Group from December 2013 and the Chong-qing Eastern Assets acquisition in November 2014. Other beverages grew organically by 12%, mainly driven by the soft drinks busi-ness in Laos.
Operating margin (%)
Beer volume, pro rata
(Million hl) Net revenue(DKKbn)
Operating profit (DKKbn) 2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012 40 32 24 16 8 0 2.5 2.0 1.5 1.0 0.5 0.0 25 20 15 10 5 0 15 12 9 6 3 0
The Carlsberg brand grew by 12% in its premium markets in Asia, primarily as a consequence of good results in India, driven by Carlsberg Elephant, and in China, driven by Carlsberg Chill and Carlsberg Light. In just a few years, Tuborg has become our key international brand in the region. In 2014, the brand more than doubled its Asian volumes thanks to very strong per-formance in China and India, as well as in the more established Tuborg market Nepal, where the 3G bottle was launched. Tuborg has become the fastest growing internatio-nal premium brand in China and the largest international beer brand in India.
We continued the further roll-out of Kronen bourg 1664, primarily the Blanc variety. The brand, which is establish-ing a solid footprint in the super-premium segment across our Asian markets, is now available in Malaysia, Singapore, Hong Kong and China. The Somersby cider brand doubled its volumes, albeit from a low base, due to very good results in the more mature Asian markets.
Net revenue grew organically by 11% with reported net revenue growth of 38%, which can mainly be attributed to the Chong-qing Brewery Group acquisition. Price/mix continued to develop favourably at +5% in spite of a negative country mix. The price/mix improvement was driven by price increases across most markets, continued premiumisation efforts, including SKU ra-tionalisation, and market share gains in the premium segments.
The Asian business continues to grow profits organically alongside our investments in growth opportunities, such as the start-up in Myanmar, and substantial investments in our local power brands and international brand portfolio. Operating profit increased by 8% organically and 17% in reported terms. The organic operating profit growth was supported by the positive price/mix and income from a terminated licence agree-ment in Q2. As expected, gross profit and operating profit margins declined due to the consolidation of Chongqing Brewery Group, which has a lower revenue per hl and lower margins than the regional average.
Change Change
Pro rata, million hl 2013 Organic Acq., net FX 2014 Reported
Beer 28.3 0% 24% 35.0 24% Other beverages 3.1 12% 1% 3.5 13% Total volume 31.4 1% 22% 38.5 23% DKK million Net revenue 9,063 11% 30% -3% 12,491 38% Operating profit 1,882 8% 11% -2% 2,195 17% Operating margin (%) 20.8 17.6 -320bp aSia
Our Asian business delivered another year of strong performance. The region now accounts for 20% of Group operating profit.
23 Carlsberg Group Annual Report 2014 Our regions
the consolidation of Chongqing Brewery Group and Chongqing Eastern Assets. Organically, our volumes declined by 7%. The overall Chinese market declined by an estimated 4%, while the beer market in our major provinces declined by an estimated 7% as several provinces were impacted by poor weather during the summer, com-pounded by the unrest in Xinjiang province. The premium category continued to grow by close to double-digit percentages. In addi-tion to the market decline, our volumes were impacted by the reduction of unprofitable products in southern China.
Net revenue grew organically by 3% as we delivered a positive price/mix improvement driven by the growth of our international premium brands, successful premiumisa-tion efforts with our local power brands and portfolio optimisation. Our international premium brands continued to grow, with particularly strong performance by Tuborg, which more than tripled in volume terms to 2m hl, and Kronenbourg 1664, which almost doubled its volumes. The Carlsberg brand delivered high-single-digit percentage growth.
The integration of Chongqing Brewery Group is progressing according to plan, with the most notable milestone being the relaunch of the Chongqing brand in Q4. In addition, we are strengthening and refreshing sales capabilities and the brand portfolio, while at the same time implementing Carlsberg Group tools and processes in functions such as finance, HR, supply chain and IT.
organically by 8%. As in recent years, our businesses in Laos and Cambodia continued to grow, while the Vietnamese operations recovered during the year.
The overall strong performance was driven by our strong local power brands, namely Beerlao in Laos, Angkor in Cambodia and Huda in Vietnam. In Laos, Beerlao is main-taining its strong market position and the relaunch of the Beerlao Gold premium line extension delivered good results. In Viet-nam, Huda improved its market share in the central region with refreshed packaging. The Halida brand was relaunched in northern Vietnam with new brand positioning, pack-aging and advertising support.
India
Our Indian business continued its strong growth trend, delivering 42% organic volume growth in a market growing at an estimated mid-single-digit rate. Our market share in India is now around 11%. The growth was mainly driven by very strong performance by Tuborg and Carlsberg Elephant, with the former now being the third-largest brand overall and the largest international premium brand in the country.
Our business in Cambodia continued to grow, supported by our strong local brand, Angkor.
Tuborg is a success story of a brand that bridges its powerful legacy with modern-day appeal. It is connected with young people’s exploration of life and growing up, and it has close ties to music. Tuborg is available in more than 70 markets and grew 24% in 2014.
Kronenbourg 1664 is the most famous French beer in the world. This premium brand is a long-standing favourite of beer connoisseurs. Sold in at least 65 markets across the globe, the brand grew 9% in 2014.
Carlsberg, our flagship brand, is available in more than 150 mar-kets across the world. The brand dates back to 1847 when our founder, J.C. Jacobsen, pioneered the first lager beer. Since then, we have passionately strived to brew and share probably the best beer with consumers worldwide. In 2014, the brand grew 1% in its premium markets.
Somersby is our international cider brand. Since its launch in Denmark in 2008, the brand has become the fastest growing international cider brand in the world and is one of the 10 larg-est international cider brands. Somersby is available in 43 markets and grew 43% in 2014.
Grimbergen is our super-premium Belgian abbey ale dating back to 1128. It appeals to consumers looking for high-quality ales with unique flavour variants. The geographic expan-sion of the brand is ongoing, and Grimbergen is currently sold in 36 markets. In 2014, it grew 27%.
Local power brands. We have many strong local power brands, including Karhu in Finland, Ringnes in Norway, Feldschlösschen in Switzerland, Baltika in Russia, Lvivske in Ukraine, Chongqing and Wusu in China, Huda in Vietnam and Beerlao in Laos.
OUR BRanD
PORtFOliO
The Carlsberg Group has a
winning portfolio of around
140 beer brands.
Our international premium brands are at the core of our business, meeting general and rep-licated consumer needs across many markets. Our strong local power brands respond to local cultures and taste preferences, and are sup-ported by a high level of consumer loyalty. We maximise the value of our brands by hav-ing a portfolio that meets consumer needs and preferences. We have a clear strategy for how our brands should work together and how we can efficiently leverage local market knowledge with global tools, insights and concepts. To capture and secure market shares, we continuously assess and adjust our product portfolio across markets. Innovation is a key strategic priority for the Carlsberg Group and vital for driving beer category growth and business results. By offering consumers new experiences, we ensure that our brands remain relevant and that we retain consumer loyalty as well as attracting new consumers.
Our core product is beer, but where it makes business sense we also pursue opportunities in adjacent categories, such as cider.
25 Carlsberg Group Annual Report 2014 Our brand portfolio
OUR
BUSineSS
MODel
Our business model is designed
to support sustainable, long-term
value growth of our business.
Key KPIs are organic net revenue and earn-ings growth, cash flow and return on invested capital, allowing us to maximise long-term shareholder returns.The Carlsberg Group’s business model sup-ports our ambition to deliver sustainable value growth and embraces our core product, our ways of working and our market presence. Beer has been around for millennia and is one of the most popular beverages in the world, only surpassed by water and tea. Nevertheless, the Carlsberg Group’s beer markets differ significantly in terms of maturity, volume growth expectations, and market, cost and regulatory structures. Consequently, their contribution to growth, earnings and development differs both at present and in the longer-term projections. Our business model reflects these differ-ences, turning them into strengths and opportunities both now and in the future.
Beer is core
Our core product is beer and that is where we focus our efforts. However, where it makes business sense, we pursue adjacent category opportunities.
Balanced market exposure
Our balanced exposure towards mature and growing beer markets supports the sustainability of our business model. Our mature markets generate high returns and solid cash flow that will either be invested in further expansion in growing beer markets or redistributed to shareholders.
Significant player in our markets
Beer is a volume business. In order to drive value, operational scale is neces-sary and we must therefore be a significant player in our markets and maintain a strong market position.
Global and local approach
Our operating model is GloCal (short for global and local) with a focus on globalising, optimising, centralising and standardising processes across the Group while rec-ognising the strength of local brands and initiatives.
Maximising
long-term shareholder
returns
1
2
OUR
StRategY
Our business model is made
operational through our strategy
and strategic priorities.
While the overall strategy is the same across our markets, we apply it in a GloCal manner, recognising the diversity and specific charac-teristics of our local markets and the need to prioritise and adapt tools to local conditions. Our strategy is illustrated by a wheel with five interconnected levers, each representing one of our strategic priorities. A set of winning behaviours guides us in how we execute the strategy and bring it to life.
Living our strategy enables us to manoeuvre and manage the opportunities and challenges of our diverse markets, and deliver sustainable, long-term value growth to our shareholders. Acceptance and appreciation by key stake-holders in society are important prerequisites for the commercial success of our company. Our strategy emphasises our commitment to growing our business in a responsible manner, and we embed corporate social responsibility across functions and markets.
We measure our performance and evaluate our progress using a number of financial and strategy-linked KPIs. A selection of these KPIs is shown on pages 34-36. Other KPIs are commercially sensitive and not disclosed.
Together we are stronger
We respect and welcome differences in culture, people and brands, at the same time recognising that working closely together and actively shar-ing best practices across functions, countries and regions are what it takes to grow and win.
We want to win
We always strive for winning solutions and are will-ing to take bold steps to reach our goals. Whether big or small in the marketplace, we behave as en-trepreneurs/underdogs – fast, proactive and action-oriented in both decision-making and execution.
Our customers and consumers are at the heart of every decision we make
We put ourselves in the shoes of our consumers and customers, and have a detailed insight into their needs and preferences. We base our strat-egies and plans on this insight and continuously evaluate the way we work to improve their experi-ence of our brands, services and people.
We are each empowered to make a difference
We take ownership of challenges and problems, both individually and in teams, and have the autonomy to deliver outstanding results. We do not let fear of failure overcome the desire to succeed, and we learn from our mistakes. We work in an en-vironment where good ideas and passion to deliver are recognised and rewarded.
We are engaged with society
We are socially and environmentally responsible, and believe it makes business sense to be so. We make a positive contribution to the societies in which we operate and the communities in which we live. We listen to and engage with our stake-holders and always strive for responsible use of natural resources.
OUR winning BeHaviOURS
Our winning behaviours guide us in how we execute our strategy and bring it to life. They pull our company together across national borders and functions as well as promoting commitment and engagement.
Our strategy is illustrated by a wheel with five interconnected levers, each representing one of our strategic priorities.
tHe caRlSBeRg gROUP StRategY wHeel
WINNING
BEHAVIOURS We are each empowered to We are engagedwith society
make a difference
We want to win Our consumers and
customers are the heart of every decision we make Together we
are stronger
THIRST FOR GREAT Great people. Great brands. Great moments Founded on the motto, Semper Ardens – Always Burning – we never settle, but always thirst for the better We are stronger togetherbecause we share best practices, ideas, and successes. We brand as many, but stand as one With the courage to dare, to try, to take risks, we constantly raise the bar. We don’t stop at brewing great beer. We brew a greater future – for our consumers and customers, our communities, and our people This passionwill continue to burn and forever keep us thirsty.
PEOPLE
• Embed a high performance culture • Develop, retain and attract best in class people
• Empower and engage our people
EFFECTIVENESS & EFFICIENCY
• Create an efficient, consumer- and customer-focused organisation • Focus and prioritise to maximise return on investments
• Continuously develop and implement Carlsberg Group Ways of Working and Best Practices
SOCIETY AND REPUTATION
• Enhance our reputation as a responsible global brewer
• Integrate Corporate Social Responsibility throughout our value chain
• Improve the image of the beer category
CONSUMERS, BRANDS AND INNOVATION
• Iconize Carlsberg
• Outperform with winning portfolio of international and local power
